The recent case of Jones v (1) Churcher (2) Abbey
National PLC (2009) considered whether a party who had paid
funds into another party's bank account in error could recover
those funds from the receiving bank or whether recovery could only
be obtained from the customer who had been paid in error.

The claimant's secretary had included the wrong account
details on a CHAPS transfer form and funds had been paid into
the wrong bank account. Miss Churcher, the recipient of the
funds, had later been persuaded to pay the funds on to a third
party who had subsequently disappeared, leaving Miss Churcher with
no means of returning the funds. The claimant therefore
sought to recover his money from Abbey National ("the Bank").

The Bank had received notice shortly after the transfer to
Miss Churcher had taken place that the payment had been made
to her account in error. However, through a series of events
no action had been taken by the Bank to place a hold on the funds
until some time after the payment had been made, by which time the
funds had been paid on by Miss Churcher to the third
party.

The Bank argued that it had a defence of 'ministerial
receipt'. It stated that it was acting as an agent for its
customer and (because the funds were transmitted under
the CHAPS rules, which state that CHAPS
payments represent cleared funds immediately upon receipt)
Miss Churcher was entitled to immediate use of the funds and the
credit to her was irreversible without her consent.

The judge dismissed this argument and held that there was no
reason why the Bank was irrevocably committed simply by making a
credit entry to a customer's account.

The judge viewed the case as turning on the question of whether
the Bank had a defence of 'change of position'. For this
defence to succeed the Bank would have had to establish that
it had, in good faith, allowed Miss Churcher to draw upon the
funds. This would have been the case if the Bank had not been
notified that the funds were being recalled at the request
of the claimant. In this case the Bank had been notified
of the recall request several days before any of the funds were
withdrawn by Miss Churcher. It had, however, failed
to take any action until it was too late and the funds had been
withdrawn.

The judge acknowledged that there were risks for a bank in
withholding funds from a customer without good cause.
However, he stated that where a bank has information to
indicate that a mistake has been made, that should be enough for it
to make further investigations before allowing a customer to
withdraw those funds. The judge therefore held that a claim
in restitution did lie against the Bank.

It is established practice for banks to act quickly in cases
where there are allegations of fraud. However, this case
suggests that banks should also establish tighter procedures for
dealing with cases where there are allegations that a payment has
been made by mistake. In particular, the judge stated that,
whilst it should not be a prerequisite for any step taken to
safeguard money transferred in error, banks should not be coy
about offering or asking for an indemnity in such
circumstances. Remitting banks should, in turn, be
asking the payer for a counter-indemnity when a mistake is
reported. The judge expressed surprise that there
appeared to be no protocol between banks for requesting or
volunteering an indemnity.

The judge also stated that steps should be taken to
ring-fence funds which are the subject of an allegation
of mistaken payment, pending further inquiries.
Depending on the information provided or the outcome of
any investigations it may be sufficient for a bank to freeze
the relevant funds.

Subject to any appeal, this case indicates that it is no longer
enough for banks to protect themselves where there are allegations
of fraud. More must now be done by banks to
also safeguard their position where there are allegations that
a payment has been made by mistake.

Keep up to date with Bevan Brittan

Connect

The information on this website is of general interest about current legal issues and is not intended to apply to specific circumstances. It should not, therefore, be regarded as constituting legal advice.